President Obama has often advocated “engagement,” rather than confrontation, with America’s adversaries. It’s one of the big reasons his nomination of like-minded former Sen. Chuck Hagel for defense secretary has run into a buzz saw of opposition.
In contrast, Obama’s selection of Mary Jo White to head the Securities and Exchange Commission has been viewed as the president sending a message to Wall Street that there will be no more Mr. (or Ms.) Nice Guy in Washington, D.C. White, a former federal prosecutor, is widely seen as someone who is prepared to be tougher on financial wrongdoing than was former SEC head Mary Schapiro, who stepped down last year. (A Schapiro deputy, Elisse Walter, has filled in since Schapiro’s departure.)
In large part thanks to this perception of toughness, White’s nomination is likely to sail through the Senate confirmation process.
Perception and reality are often very different, however, and this strikes me as one of those instances. While there is no reason to believe White would be soft on financial wrongdoing, or shy about asserting the SEC’s regulatory authority over securities and markets, she does not seem to be the sort of regulator who would aim enforcement at whoever happens to be the latest scapegoat targeted by politicians or the public. Business executives, including those on Wall Street, have no problem working with a regulator who enforces the law but respects its limits – which is the sort of regulator White seems likely to be.
White served as U.S. attorney in Manhattan, which is where most federal financial crime prosecutions take place. White herself, however, is not known personally for having been a sheriff on Wall Street, which experienced the inflation and then the bursting of the tech bubble during her nine-year tenure. Her work was instead marked by notable cases involving terrorism and organized crime. Since she left that position in 2002, she has worked as a partner at the private firm Debevoise and Plimpton, often defending the sort of corporate clients the SEC itself targeted in recent years.
The general perception, however, still seems to be that White will be aggressive in holding individuals accountable for alleged financial misconduct, and that she will seek harsher penalties against institutions than Schapiro did. Advocacy groups for market accountability largely support her nomination. Dennis Kelleher, the president of Better Markets, said of White: “She knew who the bad guys were, went after them and put them in prison when they broke the law. That’s what must happen if integrity and investor confidence is to be restored in our securities markets.” Her reputation for toughness seems to have heartened those who advocate harsher measures from the SEC.
Yet the available record indicates that, if she is confirmed, White will be more focused on pursuing deliberate misconduct, rather than seeking scapegoats for decisions that may have been mistakes but were not ill-intentioned or criminal. Last February, she said at a New York University School of Law event that prosecutors must not “fail to distinguish what is actually criminal and what is just mistaken behavior, what is even reckless risk-taking, and not bow to the frenzy.” The SEC has had some trouble with that distinction in the past.
Certainly the SEC has not failed to successfully bring aggressive prosecution against individuals or institutions involved in the financial crisis because of any lack of interest on the agency’s part. Nor has it failed because of ineffective investigation techniques. The agency failed because, for the most part, the things that went wrong in the 2007-2009 crisis were not crimes.
Bill Singer, a former attorney for the American Stock Exchange and the National Association of Securities Dealers, said in comparing her to Schapiro, “Mary Jo White needs to come into the SEC with a sledgehammer, not a with a putty knife.” I suspect White will use whatever implement she feels is appropriate for the job at hand. That’s not a bad quality in someone poised to run an agency in danger of becoming overly politicized.
It is also not a bad quality at a time when, despite the get-tough-on-Wall-Street posturing that the White House still can’t resist, the financial community needs to know that it can conduct ordinary business without fear of meritless prosecution. Regulators need to be bound by rules just as much as the parties they regulate. Having an SEC chief who understands that is a healthy way for the administration to engage with the private sector.